The notes and mortgage were at Mr. Vann's office, so he said at the time. I went up to Mr. Vann's office with Mrs. Moore, when she received one note and the mortgage, I think. She also received a receipt for the other note, which he said was then misplaced, but he would surrender it in a day or so. Later on he made various statements as to the note," etc. And again, on cross-examination, he says: "I was present when Mrs. Moore executed the deed to the W. C. Co. Mrs. Moore was paid $358 cash, and $3,800 in stock, and she paid Vann $2,800 stock. The W. C. Co. paid him nothing. After the stock had been transferred to Vann by Mrs. Moore she demanded the notes from Vann, and she went up to Vann's office to get them; but she only received one, and a receipt for the other. He said that note was then misplaced, and promised to deliver it to her in a day or so. Am quite sure he did not say it was in Ward's hands or any other person's hands at that time." Erswell is also examined, and corroborates Nash as to the conclusion of the trade at Erswell's office, and the statement then made by Vann that the notes were at his office, and the fact that Vann, Mrs. Moore, and Nash left Erswell's office to go to Vann's office. We cannot discover from the testimony that Nash read the receipt given by Vann to Mrs. Moore for the note in controversy, or that Nash there learned any fact which would have put him on inquiry, unless it was the one fact that the note here in suit was not actually produced and surrendered.

man, supra The testimony in the record | shows that the money and stock were paid to shows that both Mrs. Moore, the maker of the Mrs. Moore, and the deed delivered by her to note, and the Woodlawn Cemetery Company, Erswell in his office, before Mrs. Moore, deny all notice of the transfer of the note by Nash, and Vann went to the latter's office; Vann to Marbury. On the other hand, W. and we think it appears this was all done on C. Ward, attorney for Marbury, testifies that the faith of Vann's statement that the notes he notitied Mrs. Moore of the transfer of the and mortgage were in his office. Nash says: note to Marbury at the time, or shortly after," Mr. Erswell, Mr. Vann, Mrs. Moore, and it was made, by addressing her and her hus-myself were the parties present at Mr. Ersband a letter through the postoffice at Birm-well's office when the payment was made. ingham or Avondale (the latter according to the best of his recollection), and that the letter was never returned to him, although the envelope in which it was inclosed had his name and address thereon. If we may take judicial cognizance of the postal regulation or custom to return undelivered letters to sender, when there is a printed or written request to that effect, and the address of the sender on the envelope, we cannot consider this testimony as satisfactory or conclusive on the question of notice of the transfer of the note, in the face of Mrs. Moore's positive denial of notice, and the further fact that the burden of proof rests upon the complainant to establish notice. In the first place, the witness does not state that the postage was prepaid on his letter. In the second place, it appears from Mrs. Moore's testimony that she, at the time the letter was sent, received her letters from the Birmingham postoffice, instead of at Avondale, where she resided. In the third place, if it had been stated by Mr. Ward that his letter was sent postage prepaid, and to the proper office, it would simply have made out a prima facie case of notice, which is overcome by the positive and unequivocal denial of Mrs. Moore that she ever had notice of such transfer. We discover nothing in the testimony which disentitles her to full credit as a witness, and in accept. ing her denial of having received notice we do not in any wise discredit the testimony of Mr. Ward. The testimony of the two can be reconciled upon the theory that Mr. Ward's letter went to the postoffice at Avondale, So far as the Woodlawn Cemetery Company where Mrs. Moore was not accustomed to re. is concerned, it not appearing that the receipt ceive her letters; or that the letter was not showing that the note was then in Ward's prepaid, or was lost in the Birmingham post- hands was shown to Nash, we think the stateoffice, or delivered to some person who failed ments made by Vann, in the hearing of Nash, to hand it to her. Appellee further insists, both at that time and at Erswell's office, that however, that both Mrs. Moore and the Wood- the note was mislaid, and would be surrenlawn Cemetery Company were either notified dered in a day or two, disarmed all suspicion of the transfer of the note or acquired knowlon Nash's part that the note bad been transedge of facts sufficient to put them on inquiry at the time the payment by Mrs. Moore was made, and the purchase by the Woodlawn Cemetery was concluded; that the receipt itself, given by Vann to Mrs. Moore on that occasion, recited that the note in controversy was then in the hands of W. C. Ward. A careful review of the testimony fails to satisfy us that this contention is supported by the proof. On the contrary, Mrs. Moore swears: "Vann did not say my note was out when he made the trade, but said so when he delivered my paper. When I delivered the deed to Erswell, Vann did not tell me that the note was out. The note was handed me in Vann's office. I never heard him say anything in presence of Erswell about the note being out, and nothing in that of Nash, except in his office." Nash, in his testimony,

ferred. Indeed if inquiry had been excited, of whom would he have made it? He could not have gone out into the community generally to make such inquiry. He could have gone to no one except to the mortgagor and mortgagee and it is apparent from this record that inquiry of either of them would have been unavailing, in the light of the testimony in this record. And, so far as Mrs. Moore is concerned, it may be said that the statements of Vann to her, before and accompanying the delivery of the receipt for the note, might justly be said to have disarmed any suspicion which, without such statements, the recital in the receipt that the note was in Ward's hands ought to have excited in her mind. Brown v. Blydenburgh, 7 N. Y. 142–146, 57 Am. Dec. 506. It is to be observed this receipt does not recite that the note had been

transferred to Ward, but that it was in his mortgagor and the mortgagee so long as the hands. If this recital stood alone, it may be security subsisted. This being so, the canit was sufficient to put Mrs. Moore on in- cellation of the mortgage on the records by quiry, and that she would be chargeable with Vann, it cannot be doubted, was a fraud upon notice of all facts inquiry from Ward would the rights of Marbury, and the latter's rights have elicited; but, in connection with Vann's remained unaffected as against all parties statements at the time of the payment, and participating in, or cognizant of, the fraud. also accompanying the delivery of the re- But, as between Marbury and the Woodlawn ceipt, the most natural inference Mrs. Moore Cemetery Company, the question here precould have drawn from such recital in the re-sented is whether Marbury's rights are such ceipt would have been that the note was in Ward's hands, not as transferee, but as agent for Vann; and that it had been mislaid. We see no escape from the conclusion that Vann's declarations and conduct were intended, and naturally had the effect to quiet suspicion, and prevent inquiry by Mrs. Moore and the officers of the Woodlawn Cemetery Company, and sufficiently excused their failure to demand the production and surrender of the note. Brown v. Blydenburgh, supra; 1 Jones, Mortg. 791; Van Keuren v. Corkins, 6 Thomp. & C. 355.

that they can be asserted against a bona fide purchaser from the mortgagor, who, without notice of the claim of Marbury, has parted with its money relying upon the payment and cancellation of the only claim upon the land disclosed by the record, and which pay. ment was made to, and cancellation made by, the party whom the record showed to be the proper party for such purposes. As we have said, the transfer of the note vested in Mar. bury no legal title to the land, but simply an equity. The legal title to the conditional estate in the land remained in Vann The question with which we have mainly as fully after the transfer as before. This to deal in this case is not whether the mort-legal title, it may be, he held in trust for gage can be enforced as to this note against Marbury to the extent of the note held by the Mr. and Mrs. Moore, or whether they are latter; but it was a trust not appearing from liable personally to Marbury on the note, but the mortgage itself, or by any record, but a whether the note is enforceable in this suit latent trust, which could not affect the rights as a lien on the land as against the Wood- of bona fide purchasers, who, in ignorance lawn Cemetery Company, the purchaser of of its existence, relied on the acts and decthe land. Its attorney examined the title, larations of the mortgagee within the scone and found no incumbrance except the mort- of his apparent powers as legal owner of the gage from Mrs. Moore and her husband to mortgage; and any such acts of the mortgagee Vann, securing the two notes. So far as as would work an estoppel as against him the record showed, therefore, Vann was the would be equally effective against the holder proper party to whom payment of the mort-of a latent equity arising from contract with gage debt should be made, and who had the the mortgagee. Swartz v. Leist, 13 Ohio St. right to cancel the mortgage. In Ogle v. 419. Turpin, 102 Ill. 148, it is said: "There is Without discussing the question further, no presumption of law that the payee of notes our conclusion is that Marbury, being a secured by mortgage has transferred the notes holder of the note as collateral security for before purchasing the equity of redemption an antecedent debt, and the mortgage failing from the mortgagor, and a person taking a to show that the note was negotiable, and the mortgage from the payee will not be held payment of the entire mortgage debt having chargeable with notice that the notes secured been made by Mrs. Moore, and the purchase in the first mortgage, although not due, have made by the Woodlawn Cemetery Company, been assigned, but he may rely upon the rec-in good faith, without notice by either of the ord as showing title in his mortgagor. This we think to be the correct rule, except where the mortgage shows upon its face the nego tiable character of the notes it secures, in which event it might be incumbent on a subsequent purchaser to inquire as to whether the notes have been assigned. Keohane v. Smith, 97 Ill. 156; 1 Jones, Mortg. § 814. The mortgage before us does not describe the notes, or otherwise indicate their character. In the absence of proof of notice to the Woodlawn Cemetery Company of the transfer of the note to Marbury, or of facts sufficient to put it on inquiry, the principles which govern the respective rights of Marbury and said company in this controversy may be briefly stated as follows: By the transfer of the note from Vann to Marbury under the circumstances above shown, the latter acquired an interest in the mortgage security which he was entitled to assert as against both the 23L RA

transfer of the note, and in reliance upon the fact that the payment was made, to, and the surrender of the mortgage by, the party whom the record showed was the proper party, and who then represented himself as the owner of the note, and that it was temporarily mis. laid, such payment and purchase defeat the right of the transferee, Marbury, to subject the land to the payment of the note, notwithstanding the failure of Mrs. Moore and the officers of the Woodlawn Cemetery Company to require the production and surrender of the note at the time of such payment and purchase. The decree of the chancery court is not in accordance with our conclusion. It is therefore reversed, and a decree will be here rendered denying relief to the complainant in the court below, and dismissing the bill of complaint.

Reversed and rendered.

834

UNITED STATES CIRCUIT COURT, DISTRICT OF WASHINGTON.

OCT.,

UNITED STATES CIRCUIT COURT, DISTRICT OF WASHINGTON.

J. H. ADAMS, Receiver of the Citizens' | against the bank before the liens of the National Bank of Spokane Falls,

N DEMURRER to an answer pleading set off in an action upon a promissory note. Overruled.

The facts sufficiently appear in the opinion. Mr. J. H. Adams, in propria persona, in support of the demurrer.

United States and the general creditors attached; and that there is nothing in the statutes relating to national banks to deprive a customer of an insolvent national bank of the right to set off a debt, or obligation of the bank to him, existing at the time of its failure, against a promissory note which did not become due until after the failure, according to the ordinary rule in equity applicable to cases wherein the reciprocal liabilities of insolvents and others have to be adjusted, and the judgment of the United States circuit court for the southern district of Ohio was reversed for error in sustaining a demurrer to a defense similar to the one pleaded in this case. I should have no difficulty in reaching a satisfactory conclusion, harmonious with the reasoning of that decision, were it not for the fact that in the same opinion the

Mr. C. Wellington for defendant, contra.learned chief justice argues that the statute Hanford, District Judge, delivered the following opiniou:

This is an action by a receiver of a national bank upon a promissory note for $5,000, given to and owned by said bank. The answer alleges that the amount of the loan for which said note was given was not actually paid, but was credited by said bank to the defendant as a deposit subject to check; that thereafter the defendant purchased of said bank three bills of exchange on the Chase National Bank of New York, for sums aggregating $3,500, and paid for the same, by checks against said deposit; that the bills of exchange were presented in due course of business, but acceptance thereof was refused, for the reason that the drawer had failed; that, at the time of the suspension of said bank, part of said deposit still remained to the credit of the defendant; that, before the action was commenced, the defendant tendered to the receiver said bills of exchange, and a sum of money equal to the full amount of the principal and interest due on said note, after deducting therefrom the balance of said deposit and the amount of said bills of exchange, with protest fees, and the tender has been made good by bringing said bills of exchange and money into court. The sus pension of the bank and appointment of the receiver occurred before the maturity of the note. The case has been argued and submitted upon a demurrer to said answer.

In the case of Scott v. Armstrong, 146 U. S. 499, 36 L. ed. 1059, the Supreme Court held that the receiver of a national bank took the assets as a mere trustee, and not as a purchaser for value; that, in the absence of a statute to the contrary, demands and choses in action which belonged to the bank were in his hands, subject to all claims and defenses that might have been interposed as NOTE.-As to right to set off against commercial paper in the hands of an assignee.claims against the assignor, see note to VANN v. MARBUBY, ante, 325. 23 L. R. A.

as a defense in an action at law, is not apof Ohio, allowing a set-off to be interposed courts; and he makes the following emphatic plicable as a rule of practice in the federal annunciation: "We are of the opinion that the circuit court had no power to grant the set off in question in the suit at law." The reason given is that "legal and equitable claims cannot be blended together in one suit in the circuit courts of the United States, nor are equitable defenses permitted." In England the right to set off a debt due to a defendant from the plaintiff in an action at law is given by Stat. 2 Geo. II. chap. 22, § 13. and made perpetual by 8 Geo. II. chap. 24, 4. Most of the states of the Union, if not all, have long ago enacted similar laws. We have such a statute in the state of Washington. The practice has prevailed in the courts of this country, state and federal, for so long, and has been so often sanctioned by the Supreme Court of the United States, that the right of a defendant having such a defense to avail himself of it would seem to be firmly established. 2 Parsons, Cont. 734; Partridge v. Phoenix Mut. L. Ins. Co. 82 U. S. 15 Wall. 573, 21 L. ed. 229; Dushane v. Benedict, 120 U. S. 630, 30 L. ed. 810. In the case last cited, Mr. Justice Gray shows that the Pennsylvania law of set-off has been in force nearly two centuries. In Scott v. Armstrong, the Supreme Court reversed the judgment of the circuit court for not allowing the set-off pleaded by the defendants in that case, and approved the decision of the circuit court for the eastern district of Pennsylvania in the case of Yardley v. Clothier, 49 Fed. Rep. 337, which was an action like the one at bar, and in which a similar defense was sustained. Considering what was done, notwithstanding what was said by the supreme court, I feel warranted in following Yardley v. Clothier.

The demurrer is therefore overruled, and, the plaintiff having elected to stand upon his demurrer, a judgment in favor of the defendant for costs will be entered.

assignee.

2. An assignment of a verdict to secure the attorney's compensation does not relieve the judgment to be entered thereon from liability to offset of a judgment then existing in favor of the judgment debtor against the assignor.

(October 5, 1892.)

APPEAL by defendants from a judgment of the District Court of Buena Vista County in favor of plaintiff in a proceeding brought to compel the set-off of certain judgments. Affirmed.

NOTE.-Set-off against judgment in the hands of which the set-off was apparently denied, as being one in which the one judgment was assigned before the other was recovered. Filbert v. Hawk, supra.

The set-off of judgments, even before it was provided for by statute, was frequently compelled by the courts in their equitable jurisdiction over suitors. And while it was not a matter of strict right the rule was to allow it unless there were sufficient reasons to prevent it. It was generally considered that the right attached as soon as a judgment was entered in favor of each party, and that a subsequent assignee of one of the judgments would be bound by the equity of the set-off.

Although in Gildersleeve v. Burrows, 24 Ohio St. 204, it is questioned whether or not the insolvency of the assignor or other equitable ground must not exist in order to make available a set-off against an assigned judgment.

An assignment of a judgment for costs to the attorney will not prevent the set-off of a judgment in a former action in favor of the opposing party. Yorton v. Milwaukee, L. S. & W. R. Co. 62 Wis. 367. At law a judgment assigned to attorneys to secure costs without any prior agreement to that effect remains subject to set-off on the part of the judgment debtor. Davidson v. Alfaro, 80 N. Y. 600.

The assignee, in satisfaction of a precedent debt, of a bill of costs due a solicitor, takes the same subject to the right of the debtor to set off against it a claim then existing on a judgment against the solicitor. Utica Ins. Co. v. Power, 3 Paige, 365, 3 L.

Yet the courts have not as a rule acted on that ed. 190. suggestion.

The assignee of a judgment takes subject to an existing right of set-off of a cross-judgment. Brisbin v. Newhall, 5 Minn. 273.

At least if the assignee has notice of the existence of the cross-judgment. Irvine v. Myers, 6 Minn. 562.

A demand for a set-off prior to the assignment of one of the judgments is not necessary to charge it with the set-off in the hands of an assignee, if the equities had become perfect prior to the assignment. Dimock v. Wilbur, 1 N. Y. Supp. 205.

After a right of set off of judgments has attached it cannot be defeated by the assignment of one of them. McBride v. Fallon, 65 Cal. 301.

If the right to set-off of judgments has become perfect under the statute, it cannot be defeated by the assignment of one of them. Ballinger v. Tarbell, 16 Iowa, 491, 85 Am. Dec. 527.

After the right to set off cross judgments has become fixed, it cannot be defeated by assigning one of the judgments to the attorney. Dingee v. Shears, 29 Hun, 210.

Where, prior to the assignment of a judgment, the right exists to bave another judgment set off against it, the assignee takes subject to such right, -especially if he has notice of it; and it is immaterial that the assignment was to secure an antecedently earned attorney's fee. Skinker v. Smith, 48 Mo. App. 91.

If an assignee's lien on a judgment is satisfied, the right to set off an existing judgment against the original judgment creditor will arise and is not defeated by a subsequent assignment of the judgment to secure other indebtedness. Stillwell v. Carpenter, 2 Abb. N. C. 259.

If demands are mutual, a set-off of the judgments acquired on them cannot be defeated by assignment. But the right of an attorney who has made advances may be protected. Hooper v. Brundage, 22 Me. 460,

But it was held that prior to the Connecticut statute of set-off, one of two existing cross-judgments might be assigned so as to defeat the right of set-off. Rumrill v. Huntington, 5 Day, 163.

This case was followed in Benjamin v. Benjamin,

which had not passed into judgment. Ripley v. Bull, 19 Conn. 53.

The equity of the assignee of a judgment is subor-17 Conn. 110, and the same was true with claims dinate to an existing equity of the judgment debtor to set off judgments which he had obtained against the assignor. Jeffries v. Evans, 6 B. Mon. 119, 43 Am. Dec. 159.

In Graves v. Woodbury, 4 Hill, 559, 40 Am. Dec. 296, the court says that the assignee of a judgment takes it subject to the right to have another judgment existing at the time set off against it, even although he has no notice of such judgment; but it is decided in that case that no judgment existed at the time of the assignment capable of being set off.

The assignee of a judgment takes it subject to the right to set off a cross-judgment existing at the time of the assignment. Brown v. Hendrickson, 39 N. J. L. 239; Chamberlain v. Day, 3 Cow. 353; Hobbs v. Duff, 23 Cal. 596; Filbert v. Hawk, 8 Watts, 443.

In the last case above cited the court explains Ramsey's App., 2 Watts, 228, 27 Am. Dec. 301, is

This note will not go into the question of the statutory right to set off executions in the hands of the sheriff, as was the case in Gallaher v. Pendicton, 55 Iowa, 142.

Assignment of verdict.

It has been held that the right to set off judgments cannot be defeated by the assignment of the claim on which the later one is rendered. Johnson v. Taylor, 1 Disney (Ohio) 168.

In Orr v. Spooner, 19 U. C. Q. B. 601, as assignment of a verdict was held to be no obstacle to set off the judgment to be entered on it against another judgment already existing. There was some evidence of an assignment to defeat the set-off, but the decision was not based on this ground but upon the apparent haste of the assignment during a time

See also 29 L. R. A. 705; 41 L. R. A. 852.

The assignment of a verdict together with a judg-ship against another, which was due at the time of ment to be entered thereon to the attorneys for their services and disbursements in the action gives them an equity superior to that of the defendant to set off a judgment existing in his favor against the assignor at the time the judgment is entered on the verdict. Mackey v. Mackey, 43 Barb. 58.

But the assignment of a verdict, while an oppos- By implication at least the latter cases are suping judgment is in the hands of assignees for cred-ported by those which hold that an assignee of a itors, will not prevent the debtor from taking a re-judgment is not subject to set-off of a cross-judgassignment of it, and setting it off on the judgment ment subsequently entered. Hughes v. Trahern, under the verdict when it is entered. Jacoby v. 64 Ill. 48; Ullmann v. Kline, 87 Ill. 268; Wyvell v. Guier, 6 Serg. & R. 448. Barwise, 43 Minn. 171; Ledyard v. Phillipps, 58 Mich. 204; Roberts v. Carter, 38 N. Y. 107; Peckham v. Barcalow. Hill & D. Supp. 112.